Has The Banking System Become Less Competitive?

MICHAEL MATA | YOUR INVESTMENT PROPERTY | 17 July, 2017

Treasurer Scott Morrison has expressed confidence that the banking system will become more competitive in the future, even if a regulatory crackdown on riskier lending has undermined the ability of smaller and regional lenders to challenge the dominance of the Big Four.

Morrison’s office fended off claims of a decline in competitiveness, — triggered by S&P Global Ratings’ recent downgrade of smaller lenders — saying the focus was on curbing interest-only loans to investors.

Morrison also argued that the introduction of the $6.2bn bank levy on Australia’s Big Five banks during the May budget would improve competition in the sector, as smaller lenders had escaped the levy.

However, in step with the major lenders, smaller and regional lenders have quietly raised their home loan rates for investors in recent weeks, bolstering shareholder profits in the process.

A spokesperson for the federal treasurer said regional banks had been repricing products deemed higher risk, such as interest-only loans for investors, in line with recent regulatory curbs introduced by the Australian Prudential Regulation Authority (APRA) to reduce overall risk in the banking sector.

“The government supports increased capital requirements to lower overall systemic risk,” Morrison’s spokesperson said. “Long term, the government expects more competition in the financial services sector from the major bank levy and other 2017 budget financial services package measures.”

However, Shadow Treasurer Chris Bowen seized on the regional banks’ latest moves to renew criticism of Morrison’s handling of the bank tax.

“Scott Morrison mismanaged the bank levy on almost every score and we see more evidence – as if it was required – that the Treasurer’s argument that the bank levy was somehow about promoting competition is complete rubbish,” he said.

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